Islamic Banking in Bangladesh Progress and Potentials
Islamic Banking in Bangladesh Progress and Potentials
Islamic Banking in Bangladesh Progress and Potentials
and Potentials
I.
Introduction
II.
III.
IV.
a)
In the early twentieth century, after the formation of East Bengal and
Assam province, centering Dhaka as its capital, the socio-economic
development of East Bengal was in a new spur. At that time an
initiative was taken to set up and manage interest-free banks in
diferent areas of Bangladesh including Jessore and Cox's Bazar. But
those initiatives could not get solid foundation on the backdrop of
then socio-economic and political circumstances. Although individual
eforts and organizational initiatives continued, however, introduction
of Shariah-based banking remained a dream for a long time.
b)
c)
From the very inception, the Bangladesh Bank has been playing a
highly active and positive role in implementing the principles and
procedures of Islamic banks in the country.
On 4 April 1981, Ministry of Finance issued a letter to Bangladesh
Bank, directing all state-owned banks of the country, on the
experimental basis, to open separate Islamic banking counter in all of
their branches in towns and villages and to keep separate ledgers for
them.
In November 1980, A. S. M. Fakhrul Ahsan, the research director of
Bangladesh Bank, was deputed to the Middle Eastern countries to see
for himself the activities of Islamic banks and Islamic financial
institutions operating there. In January 1981, he submitted a
comprehensive report with a set of recommendations to initiate the
process of setting up Islamic banks in Bangladesh.
Later, on 18-19 March 1981, on the initiative of BIBM a two-day
seminar on Islamic banking was organized in Dhaka. The then first
deputy Governor of Bangladesh Bank M. Khalid Khan inaugurated the
seminar as chief guest, where recommendations were taken up to set
up Islamic banks in both public and private sectors.
On June 9-11, 1981, a senior official of the Bangladesh Bank took part
in an international seminar held in Geneva, Switzerland on Islamic
Banking and Insurance.
On 16 October, 1982, at the 4th Bankers meeting of the Bangladesh
Bank, chaired by the then-governor Nurul Islam, decision was taken
to introduce Islamic banking in all branches of six state-owned
commercial and two specialized banks at metropolitan and district
headquarters level as soon as possible.
In the light of the decision of Bangladesh Bank and for creation of
suitable manpower for Islamic Banking, a one-month long full-time
residential course was held on 6 October 1981 at Sonali Bank Staf
College. A total of 37 officers from Bangladesh Bank, all state-owned
banks, BIBM and then-proposed 'Dhaka International Islamic Bank
Limited (now, the Islami Bank Bangladesh Limited) took part in the
course.
The then Principal of Sonali Bank Staf College M. Azizul Haq played a
vital role in the successful implementation of the course. The opening
ceremony was presided over by M. Khaled, the then Chairman and
Managing Director of Pubali Bank.
While the training course was underway, M. Khaled was appointed
second deputy governor of Bangladesh Bank. He was the special
guest at the closing ceremony of the training program as the Deputy
Governor of Bangladesh Bank.
d)
Other Initiatives
e)
Bank, in 1995 Al-Arafah Islami Bank and Social Investment Bank and
in 2001 Shahjalal Islami Bank were established.
On 1 July 2004, Exim Bank and 1 January 2009 First Security Bank
have transformed their activities to Islamic banking style. Shariahbased 'Union Bank' was established in 2013.
a)
Objective Achievement
b)
i. Deposits
iii. Investment
v. Assets
Vi. Equity
vii. Remittance
viii. Import
The amount of total imports in Bangladesh, during January-June of
2014, was Tk. 167,014 crore. Islamic banks imported over Tk. 34,952
crore; which was 21% of the total imports. The Islamic banks were at
the forefront in importing various raw materials and essential goods
including fertilizers, cotton, rice, wheat, etc.
ix. Export
Total exports of the country, during January-June 2014 period, stood
at Tk. 110,096 crore. The amount of Tk. 26,787 crore has been
exported through the Islamic banks, which was 4% of total national
exports. Islamic banks have been playing a leading role in drawing of
foreign exchange through the export of various products including
ready-made garments.
x. Deposit-investment ratio
The Central bank has set the deposit-investment ratio at 90%, in
contrast, the deposit-investment
ratio of Islamic banks was
85.10% in December 2013. This
ratio
was
71.18%
in
the
country's overall banking sector.
5.2.k
Capital Adequacy
Ratio (CAR), ROA, and ROE
Compared to 10 percent Capital
Adequacy Ratio (CAR) set by the Central bank, country's banking
sector CAR was 11.50% in December 2013. At that time, capital
adequacy ratio of the Islamic banks was 12.16%.
Total asset-based average net profit (Return on Asset-ROA) for the
Islamic banks was Tk. 0.98 during 2012 and 2013. Total equity-based
average net profit (Return on Equity-ROE) was Tk. 13.05 and the
amount was Tk. 14.11 for the overall banking sector in the same
period.
VI.
Shari'ah Compliance
VIII.
a)
Industrialization, Infrastructure Development and
Employment
In the investment sector, Islamic banks prioritize overall social
developments including welfare of the people and development of
the underprivileged, remote areas of the country. Islamic banks have
invested in Garment, Textile, Steel, Pharmaceutical, Power generation
and chemical industries, which is the one-fourth of the total
investment of the country.
Islamic banks give much importance to Import-substitute and exportoriented industries. These banks take up 23.11% of thier total
investment in industrialization. Islamic banks are playing a vital role
in infrastructural development, including private sector power
generation.
Investing 45% of its resources in industrial sector, IBBL has been
contributing in countrys industrialization process and has created
employment for about 25 lakh people.
b)
c)
Islamic banks have embarked upon diferent kinds of welfareoriented investment programs. With the objective of improving the
life style of low-income and lower middle class, they have made
or linkages with poor people who are outside the normal banking
system.
X.
Social Responsibility
XI.
XII.
Islamic banking in Bangladesh: Indications of
Potentialities
a) Islamic Banking Act
b)
Incorporating Islamic
institution curriculum
Banking
in
Educational
c) Higher Training
Training institutes of the Islamic banks in the country are proficient
mainly in conducting foundation and orientation courses and in some
cases mid-level training. Higher training facility on Islamic banking is
XIII.
XIV.
XV.
XVI.
Concluding words
In view of the spectacular contribution of the Islamic banks to the
countrys socio-economic development and their continued growth as
sustainable, modern and humane bank, at an international seminar
held on 23 September 2013, jointly organized by Islamic Financial
Services Board (IFSB) and Bangladesh Bank, Governor Dr. Atiur
Rahman said:
...With
its
ethical,
inclusivity
promoting
and
stability
References
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10.
The Banker, Issue - July 2014, Top 1000 World Banks Ranking, UK.
11.
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13.
14.
15. Review of the CSR activities of the Financial Sector 2013 (June 2014),
Bangladesh Bank.
16.